First duty station primary home turned to rental

7 Replies

Hi all, 

I bought a home at my first duty station, and turned it into a rental when I PCS'ed. This was before I learned how to properly analyze a deal. When I bought it, I bought an inventory home in an area in San Antonio I thought would appreciate. Looking back, I did not account for capex, PM etc in my initial numbers and overpaid for the property. It was an inventory home, and not much of a value add opportunity. In hindsight, not a good deal, not cash flowing. Anyone run into this before? I know better now but I am in need of some insight on how to deal with this SFH properly so as to minimize the loss. Thank you!

@Patrick Ng [thank you for your service] have you looked into the VA IRRRL ( https://www.benefits.va.gov/homeloans/irrrl.asp ) it may help you refinance your loan on the property. How much of the VA Guarantee did you use in the home? Are you currently buying at your new duty station with the remaining amount? Another possible strategy is to refinance your old home with another loan to clear our your VA eligibility, continue renting it, purchase another home at current duty station with full VA eligibility +funding fee and repeat when you PCS again.

Patrick, can you share more details on the property? What are you able to rent it for? How much are you out of pocket each month after accounting for all expenses? Did you purchase it with a VA loan? Etc.

I think your best bet is to get a grasp on exactly what this property is costing you so you can decide how to best move forward. If you went the VA loan route and it's in a good location with strong rental characteristics, you may decide that you're willing to cover a couple hundred bucks out of pocket each month because you didn't have to put 20% down.

If it's burning through a lot of cash each month that you can't cover out of your budget or other rentals, you'll have to look at how much equity you have, what you could sell the property for, and what you'd clear after expenses and fees.  That may mean walking away without any cash but valuable lessons learned to apply to your future investing.  It really all depends on what your numbers are looking like for your property in your neighborhood.

@Cesar Castro @Kevin Touw

Thanks for the replies! I did buy with a VA loan in 2014.

I actually IRRRL'ed before I PCSed to try and improve the cash flow, even after, with accounting for expenses, I'm negative.

More specifically, I have the place rented out for 1800/mo. After management, and looking at a monthly expense of about $150 averaged over the past year for maintenance, I am in the red monthly. Looking at the neighborhood I am in, it does not look like the property has appreciated at all over the time I have been holding, and with realtor fees etc, I'd probably have to come to closing with some money or have just enough to cover the loan. Additionally, I do not have enough equity in the home to refinance to a conventional, unless I come with some cash to closing to bring the equity to at least 20% . 

I am hesitant to buy at my new duty station, partly because of the costly mistake of buying at my first duty station, but I do think I have a better grasp of what to look for moving forward. 

Appreciate all the input folks!

@Patrick Ng PM me so we can connect and I can help you on a more personal level, Military Veteran to Veteran.

Been there. Done that- twice. One generally purchases a primary residence with different criteria from purchasing an investment property. Converting a primary residence to an investment property can be done but you will probably have to accept lower cash flows. If you intend to return to that area and can accept break-even or low-dollar cash flow that I would say keep it. It "should" appreciate over time- both in terms of the market value and due to rental increases. However, if you aren't intending to return to the area and don't see a positive (in $$ terms) exit from the property (enough to make you want to keep it) than I would cut your losses/take your profits and invest elsewhere.

As for purchasing in a new area...if you intend to stay in the area then buy nice house for your family. If you will be moving eventually but still want to play the real estate game, then buy a house using the same criteria you would for a straight-up investment. Otherwise- rent and don't worry about it. Nothing wrong with renting (or living on base). Unlike the conventional wisdom, you are not throwing money away. I've seen too many of my fellow service members buy their dream house every 3 years only to go through about 6+ months of headaches every time they move and they usually end up losing money.

My $0.02.

@Ben H.

Thanks for the reply! How did your experience end up with doing it twice, did you end up holding or exiting? 

@Patrick Ng , I held one for about 12 years (8 years as a rental) and probably did a little better than breakeven; sold it for $50k appreciation in 12 years (+ principal reduction). The other is going on year 5 as a rental. Cash flow was positive until insurance rates for my area doubled. Now I’m at breakeven month over month. No real appreciation on that property in 9 years due to buying it right at about market height and market saturation for my area. 

I do my own PM. 

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